‘Pot follows member’, where any workplace pension pot of less than £10,000 automatically moves along with a person’s change in job, will take effect from October 2016, the pensions minister confirmed today.
Speaking today (9 December) at a Westminster seminar of the future of the pensions market, Steve Webb said: “We intend to have that in place by around October 2016 and the basic idea would be that as you move job your new scheme checks with a registry whether there is a stranded pot for you if there is they pull it across from the old scheme.”
Mr Webb added that to do this with, for example, the biggest 20 providers, would cover 95 per cent of the market.
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, emphasised that a general election would be taking place between now and then.
“While work is progressing on this between the participants, and there is a sense of urgency to deliver as much as possible and as quickly as possible, there is an element of uncertainty as it can’t get up and running this side of the general election and it lacks cross-party consensus,” he pointed out.
Mr Webb added that he expects auto-enrolment opt-in rates to benefit from the new pension freedoms, as pensions are now more popular due to the new flexibility set to come in from April next year.
Mr Webb said: “We’ve done our own survey and others have done surveys and clearly the sense that you are locking up your money and are tied in.”
He expected the take up from smaller firms to be good and re-enrolment to bolster the auto-enrolment rates too.
Mr Webb also said that the latest figures from The Pensions Regulator show that 4.9m people are auto-enrolled. “I think there is a danger when you live in the pensions world that big numbers just bounce off you, if its not a trillion or something and you know 5m in people in two years that is extraordinary.
“By the time this programme is finished in 2018 that will be 10m and that is getting on for a quarter of the adult population of the country.
The pensions minister also reiterated his view that default auto-escalation is the key to getting pension contribution rates over 8 per cent.
From 1 October 2018, the total minimum contribution for auto-enrolment will be 8 per cent, including employer contributions.
Mr Webb said: “People routinely say 8 per cent is not enough and I agree with that, for someone on middle or higher income 8 per cent plus a state pension won’t get you the kind of replacement rate in retirement that you would want.
“How do we get that 8 per cent up without causing mass opt-out? Again, I think using the default options that we use to get people in we should use the defaults to escalate people up so join a firm by default when you get a payrise a per cent of your payrise goes into your pension.”
Responding to a question about the Organisation for Economic Co-operation and Development’s recent criticism, Mr Webb said that this was a backlash from Britain’s perceivably unorthodox approach to pensions comparative to other countries.
“Because the OECD tell countries how to do pensions and we are doing something that’s not orthodox there’s an initial reaction against it.
“I think time will tell the opposite, in that first of all we think it will boost auto-enrolment because it is a more popular flexible product. We are not banning annuities so if people want to insure their longevity risk that’s fine by me.
He added: “I often say I don’t want to be the pensions minister who abolished pensions, I’m not anti-annuities but we are giving people choices.”
ruth.gillbe@ft.com, donia.o’loughlin@ft.com